A quarter of young adults making buy now, pay later repayments have struggled to pay for food, rent or other bills as a result, Citizens Advice has found.
The charity said that 24% of 18 to 34-year-olds using such schemes in the past 12 months admitted they had been unable to pay for food, a phone bill, an energy bill, an internet bill, a water bill, council tax, rent, essential toiletries or make other repayments.
Citizens Advice found 45% of 18 to 34-year-olds had used buy now, pay later schemes, which spread payments, in the past 12 months. Around half (52%) did so without realising and one in three (35%) went on to regret it.
Buy now, pay later schemes are often advertised at online checkouts as an easy way of splitting or delaying payments on items such as clothing or electronics, with incentives being “interest-free”.
But Citizens Advice fears that, for many, such schemes can be a slippery slope into debt.
Overall, 27% of UK adults have used these firms in the last 12 months, rising to 37% of disabled people and 45% of people with a mental health problem.
The average person was repaying £63 a month, but Citizens Advice found that around two in five people who had used the schemes in the past year did not think it was “proper borrowing”.
The charity also said four in 10 (41%) people who had used buy now, pay later facilities in the past 12 months had been struggling to repay.
A quarter of consumers regretted paying using these platforms, with the most common reasons being spending more than they could afford and paying more than they expected.
In a separate survey of 280 of the charity’s frontline advisers, more than a fifth (21%) said they had advised or were aware of people with buy now, pay later issues, with just over two-fifths (41%) of these seeing an increase since the start of the coronavirus pandemic.
Citizens Advice heard from a 32-year-old who bought £600 worth of clothes and used a buy now, pay later firm to pay in instalments. She did not receive the goods and cancelled her payment to the firm.
She said: “The whole thing has been so stressful. I’m constantly on edge. I’ve just been barraged with calls, emails and letters from a debt collector – all for buying some clothes online.
“The firm said they were referring me on to someone and I had no idea it was a debt collector. I had no idea buy now, pay later could impact my credit score.
“I’ve never had issues shopping this way before. But this time it’s like as soon as something went wrong they’ve washed their hands of me.”
Citizens Advice believes buy now, pay later firms must overhaul their checkout processes, to ensure shoppers are not encouraged to spend more than they can afford and improve affordability checks.
The charity will share its research with the Financial Conduct Authority (FCA), as it decides how buy now, pay later firms will be regulated.
Alistair Cromwell, acting chief executive of Citizens Advice, said: “Buy now, pay later borrowing can be like quicksand – easy to unwittingly slip into and much more difficult to get out of.
“It shouldn’t be possible for people to sign up for credit without realising, and the fact this is happening so often signals that a drastic overhaul is needed.”
Some 2,700 people who had used buy now, pay later in the past 12 months were surveyed.
Andy Harding, UK managing director of payments firm Openpay, said: “Not all BNPL (buy now, pay later) companies operate in the same way.
“Openpay has never run a marketing campaign specifically targeting young people and Openpay is never the default payment option at checkout – a practice that can lead to people using BNPL services unwittingly.”
He added that Openpay has a financial hardship policy in place for any customers experiencing financial difficulty, including as a result of the coronavirus pandemic.
The Government announced in February that interest-free buy now, pay later credit agreements will be regulated by the FCA.
The announcement was made as a review of the unsecured credit market, led by Christopher Woolard, recommended bringing such firms under the regulator’s supervision.
A Treasury spokeswoman said: “Buy now, pay later can be a helpful way to manage your finances but it’s important that consumers are protected as these agreements become more popular.
“By stepping in and regulating, we’re making sure people are treated fairly and only offered agreements they can afford.”